PreMarket Prep Stock Of The Day: Snowflake

On Thursday’s PreMarket Prep show, an educational rant by co-host Dennis Dick was immediately followed up with an educational segment on a trading scenario.

The rant emphasized the importance for shorter-term traders to be constantly monitoring the news, especially in this volatile market environment.

The issue we discussed, Snowflake Inc. SNOW, had news — earnings — after the close Wednesday, and its corresponding price action makes it the PreMarket Prep Stock of the Day.

Snowflake's Q4 Report: The company reported quarterly losses of 43 cents per share, which missed the analyst consensus estimate of positive 3 cents.

On an adjusted basis, it came to 12 cents per share against a 3-cent estimate.

The company reported quarterly sales of $383.77 million, which beat the analyst consensus estimate of $372.59 million.

Yet the first-quarter guidance did not meet the Street’s expectations, as Snowflake announced first-quarter guidance for product revenue to be in a range of $383 million to $388 million, representing year-over-year growth of 79% to 81%. Nor did FY 2023 product revenue, forecast to be in a range of $1.88-$1.90 billion, representing year-over-year growth of 65%-67%,

As a result of the guidance diappoient, sellers seized on the issue.

Algos Gone Wild: In thinner after-hours trading following a news event, such as earnings, news algorithms can take issues to wild extremes both on the upside and downside. In the case of Snowflake, the issue went into a freefall.

As Dick explained earlier, once an issue goes into motion off a catalyst, he will then go to his charts to determine where it may potentially find support.

The issue has only been around since September 2020, with its all-time high being made in December 2020 at $429 and the all-time low being made after that in May 2021 at $184.71.

In the 10 minutes after the release, the issue swooned from its closing price of $264.69 to less than $1 from its all-time low, bottoming at $184.01 and sharply reversing course. By the time it was being covered on the show Thursday, it had already rebounded back to the $215 area and traded as high as $234 off the open of the regular session.

Conclusion: If you're attempting to be a shorter-term trader, especially in this market environment, it is essential to have at least one news source to identify potential trading opportunities.

Once an issue begins to move on news, simple use of technical analysis may result in a profitable trade or a better-than-expected exit of an existing trade.

Of course, your own risk/reward parameters should be strictly adhered to when employing this type of strategy.